Do you have business assets?
If so, then they are technically at risk assuming you don’t have a protection strategy in place. And while it may have taken you a very long period of time to accumulate all of those assets that you have today, they can be quickly lost in a very short time period.
This is why it is absolutely critical to have a solid asset protection plan in place. In the event that you are forced to file for bankruptcy or are sued by another entity or individual, an asset protection plan can really save you.
Here are the top rules to follow for protecting your assets:
1. Protect Your Assets With A Business Entity
One of the simplest ways to protect your assets is to choose the right business entity for your company. A C corporation, S corporation, or an LLC (limited liability company), are all viable options to ensure that your business-related assets are protected.
At the very least, operating your business as a sole proprietorship means that your asset protection will be very limited at best, and any assets you have will be vulnerable to a potential lawsuit in the future.
Ideally, your business structure will consist of an operating entity that lacks vulnerable assets, along with a holding entity that does own the business assets. As a result, you (the owner) can either limit or completely eliminate the liability for both your personal debts and the debts of your business.
2. Get Better Insurance
This may sound too simple, but liability insurance will always serve as your initial line of defense in a litigation. If you already have an umbrella liability policy or something similar, that’s great, but you’ll probably want to increase your liability limits if you haven’t already.
As a golden rule, you will want your liability coverage to be equal to or greater than your overall net worth. So if you’re going to be receiving a portion of an estate worth a million dollars, for example, you’ll want at least one million in overall coverage.
Umbrella insurance is also relatively inexpensive, at around two hundred dollars or more per one million in coverage on average.
3. Consider Placing Assets In The Name of Your Spouse
This tip won’t always be the best one to follow, but as long as you or your spouse has a more risky occupation over the other, it may be a wise move to transfer the assets into the name of the other spouse.
Your creditors will not be able to separate the assets of the other, so therefore, the assets will need to be held as the separate property of the spouse who is less exposed to risk. A prenuptial and post-nuptial martial property agreement will be handy to have.
4. Establish An Asset Protection Trust
It’s well known that many wealthy people will use offshore accounts in order to shield their assets from creditors. The problem is these trusts are often very expensive to set up.
Fortunately, several states have now set up asset protection trusts that enable you to transfer a part of your assets into a trust that is run by an independent trustee. Examples of states that now offer this include Alaska, Rhode Island, Nevada, Delaware, and South Dakota.
The assets within the trust will not be in reach of creditors, and you will also be allowed to shield assets for your children.
5. Use Equity Stripping
Equity stripping refers to reducing the equity in a company, so that creditors will hopefully stay away. Without question, it’s one of the easiest asset protection methods in existence and a simply way to shield your assets from a lawsuit.
The reason for this is because litigators are, generally speaking, not interested in people who lack assets. Subsequently, you’ll be able to keep the control over your assets and cash flows by just making your assets and property unattractive to creditors.
An example of equity stripping would be HELOC (home equity lines of credit).
Protecting Your Assets
Have you taken any of these steps to protect your business assets? If not, you’ll definitely want to, and the sooner the better. If you don’t, your assets will be incredibly vulnerable in the event of bankruptcies or lawsuits.
Forming a corporation, getting better insurance, putting your assets into the name of a spouse, establishing an asset protection trust, and using equity stripping are just five basic things you can do to make your assets dramatically safer.